Decoding Income Tax for FY 2025-26: Simplified Slabs, Rebates & Practical Examples
The Union Budget 2025 has introduced significant changes to the income tax structure, making the new tax regime more attractive for taxpayers. This article simplifies the updated tax slabs, exemptions, and deductions in a reader-friendly manner, using clear explanations, tables, and practical examples.
1. New Income Tax Slabs for FY 2025-26
The finance minister has revised the income tax slabs under the new tax regime, effective April 1, 2025. Below are the latest slabs:
|
Key Highlights:
- Basic exemption limit increased to Rs 4 lakh (previously Rs 3 lakh).
- Tax rebate under Section 87A increased to Rs 60,000, ensuring zero tax on income up to Rs 12 lakh.
- No change in surcharge rates under the new tax regime.
2. Comparison: New Tax Regime vs. Old Tax Regime
The main difference between the two regimes lies in the availability of deductions and tax exemptions.
|
Income Range (Rs) |
Old Tax Regime (%) |
New Tax Regime (%) |
|
0 - 2,50,000 |
0% |
0% |
|
2,50,001 - 5,00,000 |
5% |
0% |
|
5,00,001 - 7,00,000 |
20% |
5% |
|
7,00,001 - 10,00,000 |
20% |
10% |
|
10,00,001 - 12,00,000 |
30% |
15% |
|
12,00,001 - 15,00,000 |
30% |
20% |
|
Above 15,00,000 |
30% |
30% |
Key Points:
- The old tax regime allows deductions (e.g., 80C, 80D, HRA), but the new tax regime offers lower tax rates.
- Individuals must choose between regimes while filing their ITR.
3. How to Calculate Your Tax Liability? (Example)
Example 1: Tax Calculation Under New Regime
Suppose an individual earns Rs 20 lakh annually and claims the standard deduction of Rs 75,000. The tax calculation is as follows:
|
Taxable Income Slab (Rs) |
Tax Rate (%) |
Tax Amount (Rs) |
|
0 - 4,00,000 |
0% |
0 |
|
4,00,001 - 8,00,000 |
5% |
20,000 |
|
8,00,001 - 12,00,000 |
10% |
40,000 |
|
12,00,001 - 16,00,000 |
15% |
60,000 |
|
16,00,001 - 20,00,000 |
20% |
80,000 |
|
Total Tax Before Cess |
2,00,000 |
|
|
Cess (4%) |
8,000 |
|
|
Final Tax Payable |
2,08,000 |
Example 2: Tax Calculation Under Old Regime
Suppose another individual earns Rs 17 lakh and claims deductions under 80C, 80CCD(1b), 80D, and 80TTA, amounting to Rs 2.35 lakh.
|
Taxable Income Slab (Rs) |
Tax Rate (%) |
Tax Amount (Rs) |
|
0 - 2,50,000 |
0% |
0 |
|
2,50,001 - 5,00,000 |
5% |
12,500 |
|
5,00,001 - 10,00,000 |
20% |
1,00,000 |
|
10,00,001 - 14,65,000 |
30% |
1,39,500 |
|
Total Tax Before Cess |
2,52,000 |
|
|
Cess (4%) |
10,080 |
|
|
Final Tax Payable |
2,62,080 |
4. Choosing Between Old & New Tax Regime
New Tax Regime is Beneficial If:
✔️ You don’t claim deductions like 80C, 80D, and HRA.
✔️ You want a simplified tax structure.
✔️ Your income is below Rs 12 lakh (eligible for full rebate).
Old Tax Regime is Beneficial If:
✔️ You have high deductions (e.g., home loan, investments).
✔️ You want to claim Section 80C (Rs 1.5 lakh), 80D (Rs 25,000), etc.
✔️ You are a senior citizen eligible for higher exemptions.
5. Important Deductions & Exemptions in the Old Regime
Conclusion
The new tax regime offers lower tax rates and a higher rebate limit, making it suitable for individuals without major deductions. However, the old tax regime remains beneficial for those who maximize tax-saving investments. Taxpayers should evaluate their deductions before choosing the right regime for them.
Understanding these changes will help you make an informed tax decision, ensuring maximum savings and compliance with the latest tax laws.